REPUBLIC OF CROATIA Outlook of the country Main general, political and economic summary of the country Embassy of the State of Israel to the Republic of Croatia Contents 1. ECONOMIC AND POLITICAL OVERVIEW 3 1.1. GENERAL INFORMATION 3 1.2. STATISTICAL OVERVIEW 3 1.3. POLITICAL OUTLINE 4-5 1.4. GOODS TRADE BETWEEN ISRAEL AND CROATIA 5 1.5. ECONOMIC INDICATORS 6-7 1.6. MAIN SECTORS OF INDUSTRY 7-8 1.7. ECONOMIC SCORES 8 1.8. CREDIT RATINGS 9 1.9. FOREIGN TRADE IN FIGURES 9-11 2. BUSINESS ENVIRONMENT 12 2.1. TAXATION – TAX RATES 12-14 2.2. INTELECTUAL PROPERTY 14-15 2.3. BUSINESS LAW 15-16 2.4. INDUSTRIAL AND COMMERCIAL STANDARDS 16 2.5. BUSINESS PRACTICES 16-17 3. BUYING AND SELLING 18 3.1. E-COMMERCE 18-19 3.2. THE DISTRIBUTION NETWORK 19 3.3. CUSTOMS 20-21 3.4. TRANSPORT 21-24 3.5. SUPPLIERS 24 4. STARTING A BUSINESS 31 1 4.1. LEGAL FORMS OF COMPANIES 31 4.2. WORKING CONDITIONS 31-32 4.3. COST OF LABOUR 32 5. INVESTING IN CROATIA 33 5.1. PROCEDURES RELATIVE TO FOREIGN INVESTMENT 33 5.2. INVESTMENT OPPORTUNITIES 33 5.3. WHAT TO CONSIDER IF YOU INVEST IN CROATIA 33-34 6. SOURCES OF GENERAL ECONOMIC INFORMATION 35 7. AGREEMENTS BETWEEN ISRAEL AND CROATIA 36-40 8. CROATIAN ECONOMY IN 2019 41-43 2 1. ECONOMIC AND POLITICAL OVERVIEW 1.1. GENERAL INFORMATION Capital: Zagreb Population (mil): 4.1 Local Currency: Croatian kuna (HRK or kn) Exchange Rate (LCU:US$): 6.6 Head of State: President – Kolinda Grabar-Kitarović Prime Minister – Andrej Plenković Country telephone code: +385 Country internet sufix: .hr 1.2. STATISTICAL OVERVIEW Population of main cities: Zagreb (688,163); Split (167,121); Rijeka (128,384), Osijek (84,104); Zadar (71,471) Ethnic Origins: The population is comprised of about 90% of people of Croatian origin, with about 5% of Serbian origin and about 5% of other origins (including Bosnian, Hungarian, Slovene, Czech and Roma). Official language: Croatian Other Languages Spoken: The country has national minorities; Serb, Slovenian are spoken, as well as Italian, especially along the sea side, also German and Hungarian. Otherwise, especially in bigger cities and in tourist resorts along the coast a lot of people do understand at least the basics of English, Italian and German. Business languages: English (particularly used in the region of the capital Zagreb), along the coast also Italian and German may be used. Religion: Catholics 87.83%, Orthodox 4.4%, Muslims 1.3%, Protestants 0.3%, Others 6.17% Literacy Rate: 98.1% 3 1.3. POLITICAL OUTLINE Executive Power President is the chief of the state, elected by popular vote for a five-year term. President can dissolve the Parliament and call for elections. President is also the commander-in-chief of the armed forces. The President appoints the Prime Minister and the Cabinet with the consent of Parliament. Prime Minister holds the executive powers. Legislative Power Legislative power is unicameral. The 151 members of parliament, called the Sabor, are elected by universal suffrage for a four-year term. The Constitution has been amended to transfer part of the powers of the President to Parliament. Main Political Parties Croatia has a multi-party system. The major political parties: - Social Democratic Party (SDP): center-left, ex-communist party, returned to power after ten years of opposition, rules with HNS, IDS, HSU - Croatian Democratic Union (HDZ): center-right, socialist, conservative, advocates political and economic liberalization, typically dominated the political scene since 1991 - Croatian People's Party (HNS): center, liberal, advocates economic reforms - Bridge of Independent Lists (MOST): center, center right, fiscal conservatism, liberalism -Croatian Peasant Party (HSS): agrarian, green liberalism -Civic Liberal Alliance (GLAS): liberalism, social liberalism -Human Blockade (ŽZ): populism, pro-Russia -Independent Democratic Serb Party (SDSS): Serb minority politics, advocates for social democracy -Istrian Democratic Assembly (IDS-DDI): Istrian Regionalism, liberalism -Bandić Milan 365 - Labor and Solidarity Party ( BM 365): social-democracy, populism Other parties include: Bloc of Pensioners Together (BUZ) Croatian Christian Democratic Party (HDS) Croatian Democratic Congress of Slovenia and Baranja (DSSB) Croatian Laborists/Labor Party (HL) Croatian Party of Rights (HSP AS) Croatian Pensioner Party (HSU) Croatian Social Liberal Party (HSLS) Forward Croatia Progressive Alliance 4 Let's Change Croatia (PH) Movement for Successful Croatia (HRAST) People's Party - Reformists Party Smart Party (PAMETNO) Current Political Leaders: President: Kolinda Grabar-Kitarovic (since 19 February 2015) - HDZ Prime Minister: Andrej Plenković (since 19 October 2016) - HDZ Next Election Dates: Presidential: 2019 Assembly: 23 December 2020 1.4. GOODS TRADE BETWEEN ISRAEL AND CROATIA*: ISRAELI EXPORT TO CROATIA 2015. 13.982 mil euros 2016. 16.605 mil euros (18,76 % increase compared to the previous year) 2017. 14.264 mil euros (14,10 % decrease compared to the previous year) 2018. 24.765 mil euros (73,62 % increase compared to the previous year) 1.-7.2019. 36.981 mil euros (49,33 % increase compared to the previous full year, not compared only to the first 7 months) ISRAELI IMPORT FROM CROATIA 2015. 54.727 mil euros 2016. 50.035 mil euros (9,37 % decrease compared to the previous year) 2017. 51.386 mil euros (2,70 % increase compared to the previous year) 2018. 28.542 mil euros (45,45 % decrease compared to the previous year) 1.-7.2019. 32.448 mil euros (13,69 % increase compared to the previous full year, not compared only to the first 7 months) *Source: Croatian Bureau of Statistics, 8th of November 2019. 5 1.5. ECONOMIC INDICATORS After becoming the 28th member state of the EU on July 1, 2013, the Croatian economy was only able to return to growth in 2015: since 2008, the country had experienced six consecutive years of economic recession, with the GDP falling by 12% (EU data). The economy grew by 2.8% in 2018 mainly driven by household consumption, while exports to non-EU countries slowed down. Overall, real GDP growth is forecasted to continue moderating to 2.6% in 2019 and further to 2.4% in 2020 (IMF). In the upcoming years, private consumption is expected to remain the main driver of growth, supported by improving labour market conditions, modest inflation and low interest rates. Still, the crisis highlighted the limits of the Croatian model, which is dependent on household consumption and the European economic context, besides its limited economic diversification. Croatia's public debt stood at around 74.2% of GDP in 2018, and should maintain a downward trend in the next few years (67.6% in 2020, IMF). In early 2018, Croatia had its first credit rating upgrade since 2004, when Fitch classified the country as BB+, with a stable outlook. In the same year, Croatia recorded a general government budget surplus of 2.7% (from 3.9% in 2017). Inflation has remained relatively low despite a rise in disposable income and an increase in energy prices, and should remain stable in the upcoming years (at around 1.5%). Croatia maintains a very balanced public deficit in general. However, it is estimated to rise to 0.4% in 2020. The Government of Prime Minister Andrej Plenkovic - head of the conservative Croatian Democratic Union (HDZ) party - was elected in 2016. The country has continued to privatize the subsidized energy and transport sectors, which have affected the production of certain industries, such as shipbuilding. Unemployment dropped to 12% in 2018 (from 12.4% in 2017), its lowest point since 2000. However, the rate remains high - with its 4.3 million inhabitants whose average revenue amounts to 59% of the EU average, as well as an influential diaspora - Croatia remains the second most developed economy of the Balkan region, after Slovenia. Main Indicators 2016 2017 2018 2019 (e) 2020 (e) GDP (billions USD) 51.64 54.76 60.81 61.59 64.92 GDP (Constant 3.5 3.1 2.6 2.6 2.4 Prices, Annual % Change) GDP per 12,371 13,271e 14,870 15,137 16,069 Capita (USD) 6 Main Indicators 2016 2017 2018 2019 (e) 2020 (e) General 82.3 77.8 74.8 70.8 67.6 Government Gross Debt (in % of GDP) Inflation -1.1 1.1 1.5 1.5 1.5 Rate (%) Unemployment 15.0 12.4 12.0 11.2 11.0 Rate (% of the Labor Force) Source: IMF – World Economic Outlook Database, October 2018 Note: (e) Estimated Data 1.6. MAIN SECTORS OF INDUSTRY AGRICULTURE The agricultural sector represents only 3% of the country's GDP and employs 7.3% of the workforce (World Bank). Croatia has 1.3 million hectares of agricultural land and almost 2.2 million hectares of forests. The country is self-sufficient in the production of wheat, corn, sugar beet, fruits, wine and olive oil; however, imports of agricultural products have been on the rise in recent years. The size of the farms is generally small (in most cases less than 3 hectares). INDUSTRY / SECONDARY SECTOR The secondary sector contributes 21.6% of the GDP and employs 26.8% of the active population. Croatian industry is concentrated in competitive activities: textiles, wood, the steel industry, aluminum and the food industry. With more than one-third of the territory covered with forests, the wood industry is one of the fundamental sectors of the economy. The country has limited mineral resources. SERVICE SECTOR The service sector represents 58.5% of the country’s GDP, employing 65.8% of the workforce. The tourism sector, in particular, is in full bloom: in 2017 it accounted for an estimated 10.9% of GDP (WTTC), while in the first nine months of 2018, around 18 million tourists visited Croatia, a record-breaking figure.